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A FUNCTIONAL APPROACH TO 
SOCIAL-ECONOMIC DATA 



A DISSERTATION 

SUBMITTED TO THE FACULTY 

OF THE GRADUATE SCHOOL OF ARTS AND LITERATURE 

IN CANDIDACY FOR THE DEGREE OF 

DOCTOR OF PHILOSOPHY 

DEPARTMENT OF POLITICAL ECONOMY 



BY 



LEVERETT SAMUEL LYON 



Private Edition, Distributed By 

THE UNIVERSITY OF CHICAGO LIBRARIES 

CHICAGO, ILLINOIS 



Preprinted from 
The Journal of Political Economy, Vol. XXVIII, No. 7, July, 1920 



Ubc XHniverslti? of Cbtcaflo 



A FUNCTIONAL APPROACH TO 
SOCIAL-ECONOMIC DATA 



A DISSERTATION 

SUBMITTED TO THE FACULTY 

OF THE GRADUATE SCHOOL OF ARTS AND LITERATURE 

IN CANDIDACY FOR THE DEGREE OF 

DOCTOR OF PHILOSOPHY 

DEPARTMENT OF POLITICAL ECONOMY 



BY 

LEVERETT SAMUEL LYON 



Private Edition, Distributed By 

THE UNIVERSITY OF CHICAGO LIBRARIES 

CHICAGO, ILLINOIS 



Preprinted from 
The Journal of Political Economy, Vol. XXVIII, No. 7, July, 1920 






H^^' 



U 



THE JOURNAL 

OF 

POLITICAL ECONOMY 



VoLiTME 28 July ig20 Number 7 



A FUNCTIONAL APPROACH TO SOCIAL- 
ECONOMIC DATA 



The conception of social life as an organic process has frequently 
invited the method of approach and the point of view in social 
studies that have long been used in the study of other organic 
processes. Recent years have seen in an increasing degree expres- 
sions of a functional viewpoint in social studies. The sociologists 
and poHtical scientists speak of the functional pomt of view and 
discuss institutions in functional terms. "Psychologists have 
hitherto devoted the larger part of their energy to investigatmg 
the structure of the mind. Of late, however, there has been mani- 
fest a disposition to deal more fully with its functional and genetic 
phases."^ In economics we see such titles as "Marketing Func- 
tions and Mercantile Organization,"^ and "The Function of 
Produce Exchanges."^ Elaborate organizations of economic ma- 
terial in which a functional viewpoint is evident have appeared. 
W. H. Hamilton has organized economic data around the problems 

' James Rowland Angell, Psychology, Preface, p. iii. 

» See article by this title, L. D. H. Weld, American Economic Review, VII, No. 2, 
p. 306. 

3 See, for example, "Cotton Exchanges and Their Economic Functions," by Arthur 
Richmond Marsh, also similar treatment of produce and mercantile exchanges, 
Annals, XXXVIII, 571- 

529 



530 LEVERETT S. LYON 

which are most pressing. The functions of institutions are dis- 
cussed in relation to these problems/ L. C. Marshall has organ- 
ized economic phenomena into a structure polarizing the institutions 
about the "outstanding aspects" of society.'' 

No doubt there is as yet too little of any form of functional 
exposition in economics, and this paper is not designed to level 
criticism at what has been done, excepting in so far as that is 
inevitable in proposing a certain new plan and organization of 
functional approach. If we examine such economic writing as 
attempts more or less definitely a functional approach, we find, 
broadly speaking, two quite distinct types. One of these might 
be characterized "the immediate" and the other "the funda- 
mental." Each one of these types, as it has appeared, has served 
very useful purposes. Each, however, as it has appeared, has very 
definite limitations. It is to indicate some of these limitations 
that this paper is in part purposed. An additional and more 
substantial part of the undertaking, however, is to suggest for 
exposition of the social-economic process a plan of functional 
approach and a method of organization which it is believed is an 
advance, at least for purposes of contemporary instruction. 

The "immediate type'' of functional exposition. — The "imme- 
diate type" of functional exposition can best be characterized by 
the fact that it stops with the more or less immediate function. 
We speak, for example, of the functions of banks as being 
deposit, discount, and issue.^ True, but we may, as the banker 
often does, understand just what these are and how each is 
accomplished and remain quite innocent of the tremendous social 
significance and responsibihty of lenders and of these banking 
operations. The explanation does not push through and tie the 
institution or phenomenon described into the whole organization 
of society. It is essentially fragmentary. It is as though we had 
expressed the significance of steam in modern life when we have 
said, "It moves pistons." We may declare to students that the 

' Walton Hale Hamilton, Current Economic Problems. 
» Leon Carroll Marshall, Readings in Industrial Society. 

» Compare H. G. Moulton, "Commercial Banking and Capital Formation," 
Journal of Political Economy, XXVI, 484. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 531 

function of market news is to give the business man information 
about his market and that the function of advertising is to aid him 
in influencing buyers. But to stop with this fragmentary explana- 
tion is to imply that there is something ultimate and vital about 
the marketing processes themselves. It is failing to show that 
marketing — meaning by that term the whole process by which 
managers find buyers and transport goods to them at a profit — is 
only one phase of speciaKzed production. More, it is failing to 
show that exchange production itself is only one possible method 
of carrying on production. 

But the fragmentary view of economic process is not the only 
weakness of this somewhat superficial functional exposition. A 
second deficiency is its lack of proportion. Social data viewed in 
immediate perspective have no relativity. A house, a monument, 
and a bowlder must look much alike to the insect whose vision is 
limited to a few inches; so with warehouses, credit, capital, middle- 
men, competition, money, bonds, labor, the stock exchange, and 
transportation to the student who is not shown organic relations 
in perspective. Some difference in the structure of these mecha- 
nisms may appear, but they are usually so narrowly viewed in the 
exposition dealing with their functions that one must seem almost 
as important and vital to society as the other. In the student's 
mind all are, at the best, in a jumbled fashion performing operations 
in that rather vague undertaking known as production. They are 
helping to "satisfy human wants."^ But the relative significance 
does not appear; the nature of the interdependence — even if the 
interdependence itself is suggested — of social institutions is not 
developed. There is offered by those who use this "immediate 
function" Httle to suggest that some functions may be viewed as 
almost, if not quite, vital to organized social Hfe, while others are 
merely transitory, evolving methods in temporary use in the genetic 

' Probably no teacher of economics has missed receiving this phrase as an answer 
when attempting to get students to state the functions of an institution. Just how 
and through what agencies has not always been shown the students. Professor 
James H. Tufts has told the writer for quotation that in teaching philosophy and 
psychology the same difficulty is present, relationships in a respectable perspective 
being so hard to establish that he actually taboos certain general words, such as 
"experience," which the student uses as an always sufficient explanation of "how he 
knows anything." 



532 



LEVERETT S. LYON 



process. "Marketing," "financial organization," "private enter- 
prise," "risk-bearing," in the sense of carrying the risks of a modern 
business enterprise, and "social control," in the sense of govern- 
mental interference, are clearly examples of mere temporary 
methods of accomplishing certain results. These cannot for a 
moment be considered as vital social functions. Organic social 
life was in process long before these methods were employed.* 
It will doubtless continue in process long after these methods have 
gone into the limbus with the stone ax, the patriarchate, and the 
clan — all good methods, perhaps, in their time. They are methods 
of carrying on tasks that can really be classified as vital social 
functions. Other methods, it would probably be safe to say 
lesser methods, are used to make these methods play their part. 

In short, the type of functional treatment of economic data that 
typically has concerned itself with the immediate functions has 
limitations and weakness for analysis and exposition if in purpose 
the study is concerned with the deeper phases of economic process. 
If we do not press beyond immediate functions, the organic sig- 
nificance of social mechanisms is unexploited and the student 
gains neither the basis for social judgment nor the basis for practical 
activity which comes with greater intellectual perspective. 

The more ^^ fundamental functional approach. — A more "funda- 
mental" t)^e of functional approach may avoid the limitations 
that have been discussed in the preceding paragraphs. Before 
discussing such examples of this type, however, as it may be 
desirable to take up, or presenting a definite proposal, it may be 
well to illustrate this more fundamental form with examples from 
some of the physical sciences. 

The method of the more fundamental functional approach is 
a method frequently used by the student of other organic processes — 
the biologist, the physiologist, and the psychologist. Some of the 
methods of all are worth noticing, as each has suggestions for 
method in presenting social-science data. 

' There is no implication of course that these were consciously adopted. Such 
a notion would be as baseless as a suggestion that man in his organic development con- 
sciously adopted a heart as a method of stirring up his circulation or that he 
consciously abandoned his tail. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 533 

Of these scientists, those who are more successful in attempting 
to expound the organic process of individual life do so by outlining 
certain functions.' The biologist attempts an analysis that goes 
to basic terms. He shows that certain tasks or functions must be 
performed or the life-process ceases. Verworn says definitely: 
", . . . the elementary vital phenomena belong to every cell, 
whether it be from a tissue of the higher animals, the lower animals, 
the plants, or from a free-living, independent unicellular organism. 
Every one of these cells exhibits in its individual form general 
vital phenomena."^ He adds later: "Every cell, wherever it is, 
performs all the elementary functions of Hfe. Without being 
nourished, without respiring, and without excreting, the muscle-cell 
can execute its movements no more than can the amoeba."^ Loeb 
also makes it clear that the performance of certain functions consti- 
tutes the life-process: 

The essential difference between living and non-living matter consists, 
then, in this: the living cell synthetizes its own complicated specific material 
from indifferent or non-specific simple compounds of the surrounding medium, 
while the crystal simply adds the molecules found in its supersaturated solu- 
tion. This synthetic power of transforming small "building stones" into 
the complicated compounds specific for each organism is the "secret of life," 
or rather, one of the secrets of life.'' 

» "William H. Howell's A Textbook of Physiology is largely an illustration of this 
method. It should be noted that this is stated as the method used in exposition. 
This is not an assertion that these scientists assume certain functions a priori. Innu- 
merable researches in anatomy, chemistry, and kindred subjects give the data from 
which to induce the generalizations. These researches also compel him to reform 
and patch his generalizations. J. S. Haldane, in Mechanism, Life, and Personality, 
expresses this for the biologist. He says: "When we examine the process of knowledge 
itself we find that it is a progressive defining of our experience in terms of fundamental 
conceptions or categories: also a gradual passing from lower, more abstract or indefi- 
nite conceptions to higher, more concrete or definite ones. This is the course of all 
scientific investigation. It is only with infinite travail and pains that our experience 
gradually defines itself in terms of higher and more definite conceptions. A living 
organism is not given to us complete in thought all at once; it only gradually reveals 
itself more and more definitely in the course of long and arduous biological investiga- 
tion" (p. 98). 

' Max Verworn, General Physiology — An Outline of the Science of Life, p. 51. 

3 Ibid. Verwom's book was published in 1899. His use of the word "vital" 
must not cause him to be confused with the vitalists, such as Galen, Harvey, or Haller. 

4 Jacques Loeb, The Organism as a Whole, from a Physicochemical Viewpoint, p. 23. 



534 LEVERETT S. LYON 

Later Loeb states : 

The constant synthesis, then, of specific material from simple compounds of 
a non-specific character is the chief feature by which living matter differs from 
non-living matter. With this character is correlated another one, namely, 
when the mass of a cell reaches a certain limit the cell divides.' 

The method of the physiologist is as useful as any for the 
student of the social sciences. Though the biologist may find an 
ultimate category necessary, the physiologist apparently finds 
a less fijial list of vital functions best adapted to explaining the 
life of the human organism.^ If detailed investigations give 
assurance that feeding, respiring, and excreting are vital to life, 
the method is to treat these as vital phenomena under which and in 
relation to which and to each other other phenomena can be 
studied. This makes possible a structure and a system in a wholly 
scientific and evolutionary sense. 

In fact, it is not difficult to analyze into their primary constituents the 
complex occupations of our present life and to recognize that its diversity is 
produced by various combinations of a few elementary phenomena, such as 
nutrition, respiration, growth, reproduction, movement, and the production of 
heat. If life be thus conceived as a sum of certain simple phenomena, the 
task of physiology is to determine, investigate, and explain the latter. ^ 

The biologist or physiologist in following this method makes 
no assertion that these functions are not overlapping, that they 
are mutually exclusive. On the contrary, he asserts that they 
are interdependent. But he does assert, or at least implies, in 
his approach that there are certain life-activities that are funda- 
mental or are sufiiciently fundamental, as his science is now under- 
stood, to justify grouping them as vital functions and grouping 
under them other sub-functions as the methods which further the 
fundamental ones. 

Now this analysis, this method of approach, accomplishes 
in great measure for the expositor of individual organic process 
results which the expositor of social organic process, certainly in its 
economic phases, has not been able to attain. The physiologist 

' Jacques Loeb, The Organism as a Whole, from a Physicochemical Viewpoint, p. 29. 
' William H. Howell, A Textbook of Physiology, and William Maddock Bayliss, 
Principles of General Physiology, are standard works that in general follow such a plan. 
J Max Verwom, General Physiology, p. 3. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 535 

in dealing with his data can indicate both organic significance 
and at the same time something of relativity. An illustration 
will aid. Once it becomes clear that the taking in of food is a vital 
function, other processes that aid the function fall more readily 
into position. If their relation to the vital functions can be shown, 
the organic significance of stomach and intestinal digestion and 
the secretion of the salivary glands is obvious. So with other 
aids to nutrition. Yet no one is left a chance of confusing the 
importance of stomach and intestinal digestion with that of the 
salivary glands. By this approach through the basic functions 
the relative significance of the two is made reasonably clear. So 
with circulation. If this is viewed as a "vital" function in man, 
the work of the heart and that of the heart valves in the human 
organism appear in the light of their significance to the life-process 
and in reasonable perspective and interdependence as regards 
themselves.' 

The psychologist uses a similar plan in explaining the process 
of mind.^ He may think of consciousness as consisting of intel- 
lectualizing, feeling, and wilHng, but for the purposes of exposition 
he presents these in such semi-primary activities as attention, 
sensing, perceiving, memorizing, imagining, etc.^ Of doing these 
tilings consciousness consists. These may then be examined as 
to how they are done and as to their effects on one another — their 
methods, interdependence, and relations. 

Now this same method may be used for the social sciences. 
There is not the slightest suggestion, however, that the vital 
functions of individual life should be compared in any literal way 
to those of social process."* The essence of the functional approach 

^ See for example Bayliss, General Physiology, chap, xjdii, "The Circulation of 
the Blood," or Howell, A Textbook of Physiology, chap, vii, "The Physiology of Diges- 
tion and Secretion." 

* Neither physiologist nor psychologist, of course, attempts to explain the phe- 
nomena in which he is interested as apart from the whole life-process. See for example 
Angell, Psychology, pp. 7-8, and J. S. Haldane, Mechanism, Life, and Personality, 
Lecture IV. 

3 See Axigell, Psychology, Table of Contents, especially chaps, iv to xiii. 

* See Herbert Spencer, Principles of Sociology, Vol. I, Part 11, especially chaps, 
iv to xii. 



536 LEVERETT S. LYON 

proposed is this: organize or polarize our multitudinous facts 
concerning organic social process to determine certain "basic" 
or "vital" social functions or processes. Organize around or 
under these basic functions the various operations or methods 
which society (in great measure unconsciously, of course) uses to 
carry on these basic functions.' The approach advocated is based 
on the idea that the facts, activities, and occupations of daily life are 
combinations of interdependent phenomena directed toward the per- 
formance of a few interdependent tasks or functions which are vital 
to the continuance of social process. It is well recognized that 
systems are dangerous and that the letter killeth. But systems 
are helpful.^ Especially in economic-social study do we need 
systematization of facts into structural forms that will aid in 
showing relationships, interdependence, and the deeper functions 
of social structures. 

The '^ orthodox'^ functional approach in economics. — When in an 
earher paragraph reference was made to a type of "fundamental" 
functional treatment of economic material there was in mind chiefly 
the "orthodox" organization. Such an organization, once one thinks 
of it in that way, appears to be a functional approach, and it is 
beyond doubt in "fundamental" terms, as that phrase is here 
used. It seems fair, however, to charge against the orthodox 
organization, as it has been presented, certain limitations. 

' It is not proposed to do this a priori. It could be done profitably only syn- 
thetically — only after a long inductive study, a careful examination and analysis of 
social structure and function— probably in the order stated. There is, however, a 
great mass of data at hand. The proposal is for a new systematization of these data 
in terms of function, interdependence, and relation. 

^ Max Verworn, General Physiology, p. lo. Verworn's defense of Galen is, in the 
field of another organic study, an excellent illustration of the need of systems. He 
says: "Along with general recognition of his immortal service, Galen has often been 
reproached with the charge that he was not content with collecting physiological facts, 
making observations, and devising experiments, but that he felt strongly the necessity 
of arranging his collected material into a complete and comprehensive system of 
physiology — nothing can be more unjust than this reproach. If Galen had been 
satisfied with ascertaining disconnected physiological facts, physiology and with it 
all medicine would not have been advanced one step farther than Aristotle had already 
brought them. Galen's greatest importance lies in the union of scraps of physiological 
knowledge into a coherent system. Isolated observations obtain value only in con- 
nection with other facts, and only a survey of the relations of facts makes possible 
further systematic progress." See also Mill, On Comte, p. 82. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 537 

First of all, while the method may have been, in the mind of its 
users, a functional approach, that fact has not been so objectified 
as to impress itself upon all readers. It has not been so clearly 
and positively put as to keep the functional idea clearly before 
the average student. A second pedagogical weakness lies in the 
orthodox organization. The functions, if as such "production," 
"consumption," "distribution," and "exchange" are to be con- 
sidered, are more of the basic or vital type indicated in the dis- 
cussion of biology than of the halfway fundamental. This is in 
itself no weakness. It is in fact desirable. But these functions 
are remote from the detailed phenomena discussed — so remote 
that there is no easy way for the mind to pass from the specific 
structure under examination to the basic function which the 
structure aids in performing. There is great need of intellectual 
stepping-stones from the particular to the general and back again. 
These ordinarily in economic treatises are lacking. Thus in the 
organization of texts in physiology the mind is carried from a struc- 
tural detail, like the salivary glands, by means of a sub-function such 
as digestion, to the really basic interest of nutrition. The orthodox 
method not only fails to use any such device, but apparently there 
is a tendency, considerably, if not entirely, to forget the functional 
analysis as the discussion proceeds. Even if it is assumed that 
the analysis has been deliberately made in functional terms, it 
appears to be soon neglected, if one is watching for a thorough- 
going plan. It is the structure of social devices rather than "what 
they are for" that receives attention. There is need, then, of an 
organization of social-economic material that states the problem in 
"fundamental" functional terms and then attempts to use in 
discussion such appropriate and convenient devices as will aid 
the understanding in retaining the functional viewpoint. 

A final question may be raised regarding the orthodox organiza- 
tion. It may not be the most satisfactory functional analysis 
possible. Changed conditions demand changed methods, and it 
may well be that a functional analysis can be found not only more 
logical but more useful for contemporary students than that pre- 
sented in the orthodox scheme. It is with the hope of stimulating 



538 LEVERETT S. LYON 

such analyses rather than of ending them that one functional 
approach to social-economic study is here suggested. 

Tfie assumptions of the suggested approach to social-economic 
study. — The assumptions upon which the suggested functional 
approach proceeds in outlining a plan for economic study should 
be made clear before the outline is examined. Briefly, the method 
undertakes, first, to make clear the general fact of wants, the 
insufficiency of free goods, and the necessity of producing economic 
goods.' It then proposes by way of introduction: 

1 . To lay stress upon the fact that society as a whole has at its 
disposal certain resources or assets. These resources may be 
classified as natural resources, labor power, capital, and acquired 
knowledge and institutions.^ Taken together, these comprise the 
precious sum-total of raw materials with which society may do 
as much as it can in carrying out its purposes. 

2. To lay stress upon the fact that social resources are at any 
one time limited in amount. 

3. To suggest to the student the attitude of mind that will 
seek to find every economic activity in some fashion woven into 
the work of doing with society's resources what society "desires" 
to have done with them. (What society desires is judged, of course, 
by the indicators which society at present uses.) There is intended 
no implication that society "desires" rationally or consciously. 
Certain uses for our resources are determined, however. After 
these preliminary ideas follows the suggestion that the entire 
complex of social-economic activities is concerned with performing 
only a few more or less "basic" functions or tasks. 

The ''basic'' functions. — Given any society with certain 
resources, what shall we consider as the basic functions or tasks 

' Wants may be wants for ideals as well as anything else. Economic goods may 
be programs of social reform as well as cheese and beer. The economist recognizes this 
fact. See Ely, Outlines of Economics, pp. 3-7. 

' There is no important difference, for the purpose of this paper, between these 
social resources and the so-called factors of production. By "acquired knowledge 
and institutions" is meant the various techniques, ranging from language and govern- 
ment to mechanics, which society has developed in its evolution. A full discussion 
or acceptance of this point is not essential to the purpose of this paper. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 539 

that are carried on ? The question suggests a number of interest- 
ing possibilities. Chiefly there arises the question whether we 
shall attempt to determine the ultimate or final functions which 
distinguish organized social life from the lack of it — thus following 
perhaps the attempted analysis of the biologist — or whether we 
shall follow rather the expository method of the physiologist and 
psychologist and utilize for purposes of instruction certain semi-basic 
functions, perhaps enabling ourselves from this middle ground better 
to survey the whole range of function and method in social process. 

There probably can be no positive answer as to which is the 
better method for all purposes. There is certainly more than one 
possibility. As will appear, something of both methods has been 
used in the plan offered. Two or three matters, however, have 
been kept in mind. An effort has been made to break the whole 
process into tasks or functions which are sufficiently fundamental 
so that other lesser tasks, functions, and activities may be classed 
under them as methods of performing the social tasks taken as 
basic. The matter of inclusiveness has also had consideration. 
Functions must be used that are broad enough to cover the phe- 
nomena to be discussed. The reader will also notice the evident 
belief that the functions or tasks chosen will be of greater peda- 
gogical value if they are such that their performance can be observed 
in several types of societies. Especially will they be useful if they 
can be distinguished in primitive and ancient as well as in modern 
groups. Such a choice of functions makes possible a constant 
comparison of the methods of various societies that is more than 
fruitful in enabling the student to see even our larger present 
institutions as present methods or means for accomplishing pur- 
poses. It makes possible a comparative study — the basis of the 
evolutionary view. It is an obvious corollary that, once one can 
view the make-up of society as a combination of methods, he has 
the basis for intelligent social analysis and rational guidance of social 
change. Sensing society in evolutionary terms is father to the 
thought of guiding the evolution. 

Without attempting to weigh all of the possibilities which might 
come to mind, consider the following plan. Organized social life 



540 LEVERETT S. LYO'N 

may be viewed as a continuous process of adaptation involving the 
performance of the "basic" functions of: 

I. Production, which furnishes the means of life.' Production is 
observable in social life in certain phenomena which may well 
be considered as the social methods of production. 
II. Determination, which we may conceive of as designating: 

1. As regards production: 

a) The ends to which production may be carried on. That 
is to say, certain social agencies put a limit on the field 
of production, as in forbidding the manufacture of 
whiskey or of white phosphorous matches. 

h) The methods, in the larger sense, that shall be employed 
in carrying on production. For example, when, if at all, 
we shall use the individual self-interest scheme in direct- 
ing productive activity, and where, if at all, we shall use 
governmental authority or other devices. 

2. As regards determination itself: 

a) The methods that determine the methods that operate in 
determination. 

h) The values or standards by which existing methods, 
either of production or determination, are measured in 
determining retention or change of these methods. 
Back of this lie the method and values that determine 
values and so on into an interacting complex that is as 
yet unanalyzed by the psychologist. 

A CONSIDERATION OF PRODUCTION 

A consideration of the function of production as a whole is 
difficult for purposes of instruction and clear vision. Analysis of 
the concept shows that production has several phases, or, perhaps 
better, involves several interdependent, overlapping sub-functions 
exactly as does the physiological concept of metabolism or the 
psychological concept of intellectualizing. We may then view 
the function of production as involving the sub-functions of: 
(i) conversion of social resources; (2) apportionment of social 

' The usual economic definition of production is near enough to stating what is 
meant. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 541 

resources; (3) the reduction of risks and wastes of social resources. 
Keeping in mind the thought already indicated, that these are 
largely interdependent and overlapping but that for purposes of 
study it may be well to view them separately, consider the suggested 
content of each. 

1 . Conversion. — Any social group must convert its raw materials, 
its natural resources, labor power, present stock of capital, and its 
acquired knowledge and institutions into those material and 
immaterial commodities that, under its "mores," customs, laws, 
and other agencies of determination, may be legitimately used for 
want satisfaction. The group of activities that are most obviously 
concerned with this work may well be studied as. the methods used 
to carry on conversion. 

2. Apportionment. — Not only must any society convert social 
resources into goods, but within the field determined as permissible 
it must determine what goods. What goods means not only what 
consumers' goods and how many and what varieties of each kind, 
but also what production goods or resources shall be replaced or 
increased. That is to say, any society gives heed to the question 
of keeping up its supply, not only of capital equipment, but of 
natural resources, labor power, and acquired knowledge and 
institutions. There is no thought in any of this to personalize 
society. Some of the work of apportionment is consciously done, 
as perhaps when an economist advises the Federal Reserve Board 
regarding the discount rate or when an educator promotes voca- 
tional schools. Much is certainly unconscious, as when the typical 
citizen adds to his savings account or devises a new mechanical 
appliance. 

To increase or maintain the supply of these resources society 
must use those which it already has. There is no other way, 
barring accident, whether the increase comes by discovery, inven- 
tion, or improvement in organization. This is as important a 
problem in apportioning resources as is the determining of what 
kinds of consumers' goods to produce. Clearly enough, this task of 
apportionment goes on closely interdependent with conversion — 
is in fact largely the control of it. But there are a large number of 
modern activities and institutions whose functional significance 



542 LEVERETT S. LYON 

in society is most quickly and clearly seen when they are discussed 
as aiding in society's task of apportionment. 

The work of apportionment, as the term is here used, has 
frequently no concern with social welfare. In so far as the method 
used is individual self-interest, this is true. Apportionment is the 
task of making the decisions indicated above, but only within the 
field that is at any given time the legitimate field. Apportionment 
implies a short-time view of social aims. It is concerned with 
determining how much beer and how many Bibles, not with deter- 
mining that either or neither is proper. The task of apportion- 
ment, in so far as it is done by the method of individual self-interest, 
is to decide what shall be done with our resources within the area 
that economists usually cover by the term "demand." Economists 
may have erred when trying to limit themselves to activities 
carried on in response to demand. Demand is itself only a phase 
of the economic process. Demand must be explained; it cannot 
be assumed. In any event, the proposed approach to social data 
includes a recognition of the methods of determining the desirable 
purposes of social activities. But apportionment is not that task. 
Of those goods, material or immaterial, which it is permissible to 
make, what ones shall we make and how many of each ? Changing 
the purposes to which we may permissibly apportion resources is 
discussed as another function. 

Reduction of risks and wastes. — The methods by which society 
performs the work of production are, in the process, undergoing 
constant revision. We are, in many cases, quite clearly conscious 
of imperfections. Certain devices used to convert social resources 
are rapid, but declared to be wasteful. Many devices used in 
apportionment perform, we say, but poorly. Child labor, machine 
industry, and private exploitation of natural resources may all 
convert resources with desirable rapidity, but carry with them 
what we call social waste. The methods that are used to reduce 
risks and wastes of social resources, ranging all the way from 
such institutions as public ownership and private property to 
patented sprinkling systems and belt guards, show their work of 
risk-reducing quite plainly when studied under risk and waste 
reduction as a distinct function. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 543 

The use, in teaching, of this function of "risk and waste reduc- 
tion" brings out in a vivid fashion our double standard of waste 
which allows us to use pecuniary evaluation and at the same time 
talk of reckless, wasteful exploitation of resources. The fact is, 
of course, that we have two standards. No method is long used 
in business which is known to be wasteful from a pecuniary stand- 
point, and nothing which pays can fairly be called wasteful so 
long as we utilize individual self-interest to control apportion- 
ment. To illuminate this, one social paradox would alone justify 
the use of "reduction of risks and wastes" as a sub-function for 
purposes of study and organization of social-economic material. 

Moreover, a whole range of social problems is illuminated by 
this method. From this viewpoint not only does the social signifi- 
cance of conservation, "safety first," child labor, disease, market 
information, changes in technique, unemployment, and radicalism 
come out prominently, but the question, "What is proper use?" 
demands an answer and no sentimental or superficial answer will 
longer sufiice. 

The manner in which modern society intrusts the guarding of its 
social assets to the watchdog of self-interest by the method of 
private property is illuminated by a consideration of risk and waste 
reduction as a social function. The limitations of this method 
are also more clearly seen than if we study private property as a 
thing apart. The extent to which methods designed chiefly to 
protect against risk and waste of privately owned resources operate 
to reduce risk and waste of social resources can also be indicated 
with a clearness that may well justify the treatment of risk and 
waste reduction as one of the interdependent sub-functions of pro- 
duction. 

DETERMINATION AS A "BASIC FUNCTION"^ 

Any society which is not wholly static will exhibit numerous 
phenomena that have chiefly to do with determining what changes 
shall occur. Just as truly a static society will exhibit many 

' The reader should not infer that there is any implication that this function is 
carried on wholly consciously. The conscious and unconscious shade so imper- 
ceptibly into one another that nothing is to be gained in a general study by an attempt 
to discriminate between unconscious control, as by social tradition, and conscious 
planning, as by governmental commission. 



544 LEVERETT S. LYON 

institutions which keep it static. These phenomena can profitably 
be studied, if their social significance is sought, as methods of 
determination. 

Society carries on in this function two chief pieces of work. One 
is to determine its purposes, aims, and standards. This may be 
done planfully as by research, laws, and committees, or subcon- 
sciously as by the "mores," or by a combination of both methods 
too intricate to be disentangled. The other task is to determine 
the methods most suited to accomplishing the objectives and 
securing conformity with the standards. This task also maybe 
carried on by subconscious or "rational" methods, or both. 

In a word, the function of planning, guiding, and controlling the 
social process is the double task of determining what to do with 
society (and we can do with society or consciously determine what 
to do with it only by utiHzing social resources), and determining 
what methods shall be used for doing with society those things 
which we determine to do.' 

There is a place, therefore, in social-economic study for con- 
sidering as such the institutions or phenomena that function as 
methods in determining the "whither" of society. Related to 
this there is a place for considering as such the institutions or 
phenomena that function as methods in determining what methods 
shall be used in converting, apportioning, reducing risks and 
wastes of resources, and in guiding society in evolving toward that 
"whither." We must consider as well those social methods that 
determine the methods of both the above. Such social phenomena 
as these — existing in any society— yield their social significance 
to study perhaps most readily when considered as the methods by 
which society performs the function of determination. 

General explanation is after all less clarifying than specific 
illustration. Probably the best way to make clear what is involved 
in this approach to social-economic study is by an outline of the 
method as it has actually been used. There is given first a brief 
skeleton outline to show merely form, and this is followed by a 

' It is hardly necessary again to remind the reader that society is constantly 
determining these matters, whether anyone realizes it or not. Realized or unrealized, 
we have powerful methods at work. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 545 

discussion designed to elaborate the outline and to show specifically 
what may be done with each topic. 

POSSIBLE OUTLINE FOR A FUNCTIONAL APPROACH 
INTRODUCTION 

The introduction, whether or not it is to be followed by such 
material as has been suggested in the preceding paragraph, should 
set forth clearly: (i) the fact of wants, (2) the deficiencies of nature, 
(3) the materials which nature does supply and the limitations 
of these at any given time, (4) what society has in addition to 
natural resources at any time; that is, supplies of labor power, 
capital, and acquired knowledge and institutions. This introduc- 
tion should also explain the functional approach in a general 
fashion and the general meaning of each of the fimctions which 
has been determined upon. 

BODY^ 

Organized social Ufe may be viewed as a continuous process of 
adaptation involving the performance of the functions of: 

I. Production, which may be considered as involving the inter- 
dependent sub-functions of: 

I . Conversion, which in modern societies is carried on by such 
methods as: 

a) Specialization 

(i) Within single economic units 

(2) Of localities 

(3) Of economic units 

b) Capital industry ("machine industry" may suit some 
better, though the term is too Hmited) 

c) Concentrated business units 

d) Individual enterprise and associated enterprise 

'The material outlined here might very sensibly be preceded by an intro- 
ductory section showing the economic organization of some other period. The organi- 
zation of a primitive group or of a medieval manor might do well. For some purposes 
the organization of an army unit makeg the best material for comparison with our 
economic system. Some such preliminary survey makes possible that very useful 
pedagogical device that the physiologists call "comparative physiology." 



546 LEVERETT S. LYON 

2. Apportionment/ which in modern societies is carried on 
by such methods as: 

a) Individual self-interest 

h) General interest, both of which are aided by such tech- 
niques as: 

(i) Pecuniary paraphernalia; pecuniary units, coinage, 
checks, etc. 

(2) Types of business organization ; corporations, holding 
companies, governments, associations, "founda- 
tions," etc. 

(3) Banking and other financial techniques 

(4) Market news and social surveys, including in the 
terms all information gathered by the consular 
service, salesmen, the Department of Agriculture, 
budgetary committees, trade journals, bureaus of 
research, etc. 

(5) Scientific internal business organization, including 
time and motion study, job analysis, intermittent 
work, etc.^ 

3. Reducing risks and wastes of social assets. This sub-function 
can best be studied by considering the reduction of risks 
and wastes of various kinds of social assets separately 

a) Risks and wastes of physical resources, in modern societies 
reduced by such methods as: 
(i) Improved techniques of conversion 

(2) Scientific research 

(3) Improved accounting methods 

(4) Conservation movements 

(5) Reclamation service, agricultural schools, experiment 
stations, "forestry," etc. 

(6) Public ownership and control (in some instances) 

(7) Private ownership and control (in some instances) 

(8) Scientific internal business organization (if not con- 
sidered above), etc. 

" Some will comprehend this idea most quickly if they think of it as the organiza- 
tion or control of production. 

* These could quite as well, perhaps better, be studied as a method of reducing 
wastes and risks. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 547 

b) Risks and wastes of capital in modern societies, reduced 
by such methods as : 
(i) Private ownership 

(2) Advertising 

(3) Speculative and other contracts 

(4) Integration 

(5) Social control of capital creation 

(6) Insurance 

(7) Accounting 

(8) PubKc protection 

(9) Pilot service 

(10) Bureau of Mines 

(11) Department of Agriculture, etc. 

c) Risks and waste of human resources in modern societies 
reduced by such methods as: 

(i) Those which lessen risks of capital 

(2) Labor exchanges and employment bureaus 

(3) "Safety First" movements 

(4) PubHc and private health propaganda and agencies 

(5) Vocational guidance and education, public and private 

(6) Private property in goods 

(7) Birth control 

(8) Private property in labor, etc. 

d) Risks and wastes of acquired knowledge and institutions, 
reduced by such methods as: 

(i) Education, books, etc. 

(2) Research, in social methods especially 

(3) "Conservative and liberal agitation," free speech, 
suffrage 

(4) Pohtical machinery, including laws 

(5) Custom, tradition 

(6) Private property rights, etc. 

II. Determination, in modern societies carried on by: 

1. Such largely subconscious methods as tradition, social habit, 
morals, caste systems, religious creeds, ideals, customs 

2. Such conscious or semi-conscious methods as government, 
law, propaganda, education, etc., with many subdivisions 



548 LEVERETT S. LYON 

3. Such scientific and semi-scientific methods as psychological, 
social, biological, anthropological, and other research 

A DISCUSSION OF THE OUTLINE' 

Organized social life may be viewed as a continuous process of 
adaptation involving the performance of the functions of: 
I. Production, which may be considered as involving the inter- 
dependent sub-functions of: 

I . Conversion, carried on in modern society by such methods as: 
a) Specialization 

(i) Within single economic units 
Here the student can be shown the significance in conversion 
and thus to the whole economic structure of such phenomena as 
division of labor in the factory and office, and speciahzation of 
capital and management. Some of the advantages, disadvantages, 
and general and specific effects which are usually indicated in such 
discussions can be pointed out if desired. It would be well to make 
ver}^ clear that specialization is a method used in governmental or 
co-operatively operated units quite as freely as in private business 
units. In other words, specialization is a method of conversion 
that may be used with a variety of other methods perhaps as well as 
with private enterprise. 

(2) Of localities 
International trade, in fact, trade between any localities viewed 
as a form of specialization is readily seen from this viewpoint as a 
method which society uses in converting its resources into want- 
satisfying goods. The significance to society, therefore, and the 
functional position of all the detailed phenomena connected with 
trade become discernible. In this section one may, once this point 

' It will undoubtedly seem to some that any such introduction to social data as is 
here suggested should include a study of "consumption." There is much to be said 
for such inclusion and its omission from this paper is not founded on the idea that 
"consumption" is not an extremely valuable "function" under which to correlate 
many activities as methods. It would probably lend itself well to treatment very 
similar to that given the functions used. Can we not, for example, usefully consider 
consumption as carried on by such methods as sustaining life, child bearing and rearing, 
worship, leisure, recreation, display, etc. ? Consumption can be thought of as "deter- 
mined" by such methods as literal physical need, fashion, "invidious comparison," 
"emulation," etc. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 549 

is clear, go as far as he pleases in working out the various circum- 
stances under which specialization of localities proves to be a 
desirable method, and as far as he cares to go in examining the 
material which is usually given in courses in marketing and foreign 
trade. In any case, the social significance of that material will 
be indicated. 

(3) Of economic units 

Each economic unit, whether a bank, a bourse, a legislature, a 
warehouse, or a retail shop, is a specialist. This view of specializa- 
tion of economic units, viewed as a social method, furnishes an 
excellent scheme for studying our middlemen, organized markets, 
efforts at standardizing commodities, bureaus of inspection, govern- 
ment marketing of goods, patent oflBiCes, and showing how these 
function in the great social task of converting resources into want- 
satisfying goods. Detailed study of marketing may be pressed as 
far as time and desire permit. Once this view is taken, however, 
all the activities concerned with marketing relate themselves 
directly to this form of specialization as a social method of carrying 
on conversion. 

The study of specialization offers frequent opportunities to 
point out the social problems intimately related to, if not flowing 
from, specialization as a method of conversion. Interdependence 
in its many phases, the impersonality of modern relationships, 
the risk elements introduced, and the unique, co-operative character 
of all those participating in specialized conversion can be well 
indicated at the conclusion of this part of the work. 

A momentary digression seems desirable here to touch on a 
more fundamental matter. To treat distinct economic units as 
only a phase of specialization is not in accord with a practice that 
has been very common. There has been a practice of dealing with 
the phenomena of buying and selling between business units under 
the heading of "value," "exchange," or "value and exchange."' 
And to a very considerable extent at least this "valuing" and 
"exchanging" has been thought of as the valuing and exchanging 

' Mill, Principles of Political Economy, Book III; Gide, Political Economy, Book 11, 
chap, iii; Seager, Principles of Economics, chap, vii; Ely, Outlines of Economics, 
Part II; Taussig, Principles of Economics, Book II. 



550 LEVERETT S. LYON 

of commodities. In some instances, at least, the thought has 
been of commodities which have been produced. A clear illus- 
tration is found in Gide:' 

Exchange fills a huge place in social life. Sufficient proof of that rests in 
the fact that nearly the whole of wealth which is produced is only produced 
for the purpose of being exchanged. Take the corn in the granaries, the wine 
in the cellars of land proprietors, the clothing in the tailoring rooms, the shoes 
at the bootmaker's, the jewels at the goldsmith's, the bread at the baker's — 
and ask, What part of all this wealth is destined by the producer for his own 
consumption ? Very little or none at all. It is only merchandise, or, as the 
name teUs, objects intended for sale. 

A similar statement is found in Taussig f 

The division of labor brings in its train the exchange of goods between those 
who undertake the separated acts of production. Exchange in turn brings the 
phenomena of value, money, and prices. 

That it is more or less "finished" commodities that are com- 
monly in the mind of the economic writer when discussing the 
subject of "value" or "exchange" is a fair inference in many cases 
where the fact is not bluntly stated. It is the marketing, the price 
fixing, of commodities or services which are well advanced toward 
complete production that are considered. There is no discussion 
of wages under exchange nor the implication that wages could be 
treated there. Yet a wage is the price for which a majority of the 
co-operators exchange their contributions to production. The 
discussion of interest and rent also are reserved for discussion in 
other connections. Why? Are not these, including wages, 
merely the "exchange values" of the specialized contributions 
made by certain of the co-operators ? 

To deal with the matter of exchange as it has commonly been 
dealt with, as the exchanging and valuation of produced commodi- 
ties, was probably quite justifiable when Adam Smith wrote :^ 

When the division of labour has been once thoroughly established, it is 
but a very small part of a man's wants which the produce of his own laboiu" 
can supply. He supplies the far greater part of them by exchanging that 
surplus part of the produce of his own labour, which is over and above his 

' Political Economy, p. 169. ^ Principles of Economics, I, 113. 

5 Wealth of Nations, Book I, chap, iv, p. 10 (McCuUoch's edition). 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 551 

own consumption, for such parts of the produce of other men's labour as he has 
occasion for. Every man thus lives by exchanging, or becomes, in some meas- 
ure, a merchant ; and the society itself grows to be what is properly a com- 
mercial society One man, we shall suppose, has more of a certain 

commodity than he himself has occasion for, while another has less. The 
former, consequently, would be glad to dispose of and the latter to purchase, a 

part of this superfluity The butcher has more meat in his shop than 

he himself can consume, and the brewer and the baker would each of them be 
willing to purchase a part of it. 

In Smith's day "exchange" was more largely than now a matter 
of exchanging completed commodities. It was then more accurate, 
perhaps, to think of a man producing a commodity and, having 
supplied his own need, offering the balance for exchange. But 
where now (save in some instances of produce growers and a few 
small manufactories) is such a case to be found ? The heel slugger 
of the shoe factory slugs no heels for himself. The wheat grower 
of Minnesota uses no more of his own wheat than the Texas cotton 
grower does of his own cotton. 

But of still more pertinence is the query, Who now produces 
anything in complete form?' To see the type of analysis now 
needed it is necessary to note what is involved in modern exchange. 
In modern society interchange or exchange takes place by contribu- 
tions of "divisions" of privately owned rights. Some of these 
are in the form of labor. Some are other rights. When labor is 
contributed, as when other rights are, it is highly specialized. The 
factory hand is exchanging when he works at the drill press in 
exactly the same way that the clerk in the retail store and the 
brakeman on the railroad are exchanging when at their special- 
ized jobs. If this view is sound, it is misleading to emphasize the 
marketing process as the machinery of exchange. If we emphasize 
the idea that such exchange of specialists as exists now is effected 
by market structure in the commercial sense of the word, do we not 
imply that marketing agencies are something different from speciali- 
zation in part of the process of production? Marketing is, of 

' The economist, of course, has always recognized the truer meaning of "pro- 
duction" when he included the creation of "place," "time," and "possession" utilities 
in his definition of that term. By the time the discussion of exchange was reached, 
this definition appears frequently to have been neglected. 



552 LEVERETT S. LYON 

course, part of production, and here we find specialists exactly 
as in the factory — specialists within business units, and specializa- 
tion of business units (series). 

Is not the specialized work of the marketing agent, the salesman, 
the ticket agent, or the grocery clerk of a co-operative character, 
in the social sense, quite as much as that of the specialized factory 
worker; and is it not made co-operative or exchanged quite as 
much by means of the factory, as the work of the factory employee 
is made co-operative by the marketing machinery ? 

In other words, in present-day society we have specialization 
which necessarily involves co-operation, but the organization of 
that specialization is not to be explained by describing what we 
ordinarily call marketing, and the emphasis upon marketing 
machinery as playing an especially large part in this is misleading. 

To describe such interchange of highly specialized co-operators 
no discussion of selling finished or partly finished goods will suffice. 
To describe it involves an examination of the entire organization 
of production. To separate it from that discussion serves, it 
appears, no useful purpose. When modern specialized production 
has been described, exchange has been described. There is no 
structure of exchange except the structures of production. Pro- 
duction is not complete until exchange has taken place. 
h) Capital conversion or capital industry 

By this term is not meant the conversion of capital, but capital 
as a method of conversion. Capital viewed as a method of con- 
version — and it undoubtedly is a method used by modern society — 
will necessarily bring up for examination all of those phenomena 
which have been so well treated under the discussion of ''machine 
industry" in many treatises.' The historical changes by which 
society took on this method of conversion, its meaning, pervasive- 
ness, and productivity are naturally appropriate matters for 
discussion, while results in such directions as effects on the worker, 
overhead costs, the rise of trusts, new elements of risks, impersonal- 
ity, and new demands on social control cannot be overlooked. The 
point of view most to be emphasized, of course, is capital as a 

* The use of capital is^so extensive in forms other than the machine that there 
seems to be much reason for the use of this general term. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 553 

method. The student then sees readily that no society can hope 
wholly to avoid the problems of capital, if the capital method is used. 

c) Concentration of economic units 

Concentration in economic units, meaning economic units both 
large scale and integrated, is a social method. Treatment of 
this method as a means used by society for conversion brings into 
view in their functional aspect all of those economic phenomena 
which are usually discussed under large-scale industry and inte- 
gration. The method can be seen in proper interdependence with 
its benefits and the problems it brings. But the student must not 
be left with the notion that it is in private business enterprise only 
that society uses this method. Our co-operative undertakings 
display it quite as fully. Our government itself is an excellent 
example. Our Departments of State, of War, of the Navy, and of 
Agriculture illustrate our use of this method quite as well as the 
packers, the steel trust, and the chain store. 

d) Individual enterprise and associated enterprise^ 

The method which modern societies use prevailingly to organize 
their efforts for conversion is to allow the individual to use his 
initiative. This is clearly a method of organizing conversion. 
(It has other functions also, of course.) Other methods of organiza- 
tion are possible, however, and are really used to such an extent that 
it is probably an error to stress too heavily the idea that ours is a 
society in which private enterprise is the only means of organization 
worth considering. The range of work done by governmental 
agencies gives denial. The increase of governmental activities is 
rapid. Moreover, few opportunities will be found better to describe 
two great social methods operating side by side, one apparently 
gaining on the other in the extent of its operations. The amount 
of conversion organization carried on by associations of lesser 
significance than the government is also worth considering. The 
view of individual enterprise as one social method makes possible 
a vivid discussion of conversion organized by other methods, as in 
communistic, socialistic, and customary groups. It presents an 
excellent opportunity to bring out certain phases, at least, of the 

' These methods could as well, perhaps better, be considered under apportion- 
ment. To the writer there seems little choice. 



554 



LEVERETT S. LYON 



social significance of private property and its relation to the method 
of private enterprise. 

To summarize, this approach to the production function brings 
certain advantages in analysis and for teaching. Throughout the 
discussion of conversion, for example, and the various methods 
which society uses to accomplish it, constant use may be made, 
when this point of view is kept, of contrasts between the actual 
methods and other possible methods. Specialization becomes 
vivid as a method of production if it is contrasted with the methods 
used by Indian tribes. Capital conversion, in the same way, takes 
on significant meaning if contrasted with the methods of the primi- 
tive group, of the medieval craftsmen, or of the tribesmen of 
Israel. Furthermore, the student may be brought to see vividly 
that the so-called problems are closely related to these tremendous 
social methods which are in use. More specifically, concentration 
of economic units viewed as a method of production throws light 
on the trust problem, on increasing centralization of government, on 
the methods of social control which are becoming more common, 
and on the question of autocracy and democracy, both in business 
and in politics. Individual enterprise viewed as a method rouses 
the student to note that socialism and other proposals for reform 
are in themselves mere methods, not finalities. The student may 
see that the adoption of any new methods would not do away with 
the necessity for other methods which society is using and conse- 
quently could not wholly eliminate the problems which come from 
these other methods. Perhaps the student will see, too, that 
certain of the methods which are in use could not be shaken off, 
even if we knew the technique of ridding ourselves of them, without 
consequences perhaps fatal to social organization. 
2. Apportionment, carried on by 

a) Individual self-interest 

b) General interest 

How does society determine the uses to which its resources 
should be put, within the field that is considered legitimate at any 
one time ? What amount of its resources should go back into 
re-creation of resources ? In an army unit, let us say, we move a 
man from the rear to the first-line trenches by means of an order; 
we send guns and ammunition with him by the same authority; 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 555 

we convert a cavalry regiment into infantry; we send one party 
on a scouting trip in airplanes and another to fight a rear-guard 
action by the same method. This is apportionment of resources 
by authority. In modern society it is clear that this is not the 
method more ordinarily used. Resources are apportioned (this 
assumes private ownership)^ by the self-interest lure. Resources 
tend to go in the direction of greatest profit to their owners. This 
is true whether the resources are land, labor, capital, or acquired 
knowledge and institutions. The method is not apportionment 
by authority; it is individual self-interest apportionment. As sub- 
divisions of such a viewpoint the social function of accurate pecuni- 
ary units involving government coinage and control of money 
becomes clear. The function of accounting and the need for calcula- 
tion systems become equally obvious. 

This view of the way in which our resources are apportioned 
shows the student the fact, too little realized from a perusal of the 
typical treatise, that our productive effort is directed most com- 
monly not to satisfying society's wants but to satisfying the 
wants of those who have. Pecuniary demand may be anything but 
social wants or needs. It may be "organized wrong. "^ 

Nevertheless the assumption of individual self-interest appor- 
tionment is not the whole truth. Governmental budgets are not 
made to produce profits. The law, the courts, national armies 
and city police, the public schools, and a score of other forms of 
organized production give supposedly equal service to those with 
and those without purchasing power. In so far as these forms 
of production are created from privately owned social resources, 
the pecuniary paraphernalia are in part usually employed. Fre- 
quently they are of little service as compared with other methods. 
Men, for example, do not face flame projectors for thirty dollars a 
month. But in these forms of social-enterprise production where 
the pecuniary method is used to carry through the process the 
instigation is not profits but a conception of need. It is not 
individual self-interest but general-interest apportionment. 

' This point is an excellent one at which to indicate the pervasiveness of the 
institution of private property. 

^ See Cooley, "Political Economy and Social Process," Journal of Political 
Economy, XXVI, 369. 



556 LEVERETT S. LYON 

The view of the extent to which the self-interest method of 
apportionment operates can well be used, too, to make clear to 
the student that where that method is in vogue society does not 
organize its apportionment for the distribution (in the usual eco- 
nomic sense of the term) of consumption goods. When goods are 
converted, or produced in the economic sense, distribution in the 
economic sense is already largely accomplished. The loaf is not 
produced until it is applied to my want rather than to my neigh- 
bor's because I have a dime and he has none. There is in modern 
society, in so far as self-interest apportionment is employed, no such 
function as distribution in any basic sense. It is merely a method of 
organizing conversion.^ 

(i) Pecuniary paraphernalia 

The great amount of pecuniary paraphernalia which society has 
devised is of immense use in apportioning our resources. Among 
this paraphernalia, the pecuniary unit and a standard of value 
stand out as strikingly important. Coinage and the various 
types of instruments which represent purchasing power all have, 
however, their obvious uses. This pecuniary paraphernalia serves 
a double purpose in self-interest apportionment. The individual 
business manager is told in pecuniary terms the direction in which 
society wishes to have resources apportioned. He then uses 
pecuniary paraphernalia in securing the use of resources. Where 
apportionment is made in the general interest, as by the govern- 
mental or other social groups, guidance is not given by pecuniary 
demand, although the pecuniary paraphernalia is used to secure 
control of social resources. 

(2) Business organization as a method of apportion- 
ment 

Business organizations, public or private, may be viewed as 
techniques used in both self-interest and general-interest appor- 
tionment of resources to various productive uses. Businesses may, 
of course, be organized to apportion resources to consumers' goods 

' In the foregoing discussion the term "distribution" is used in the conventional 
economic sense of the division of the social dividend into rent, wages, interest, and 
profits. Distribution in another sense might well be treated as a basic function. 
Such a discussion would deal with the control of the distribution of wealth which is 
implicit in the existing organization of property rights, inheritance, taxation, charity, 
public works, etc. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 557 

or to the maintenance or increase of society's supply of any of its 
productive goods. Business organization, viewed as a method 
of apportioning social resources, indicates that partnerships, 
corporations, amalgamations, and trusts are means of increasing 
control over the amount of resources which are apportioned in any 
desired direction. Interlocking directorates, "dinner parties," 
and other informal means of control can also be seen as types of 
business organization for increasing control over society's resources 
to the end that they may be apportioned as the organizers desire. 
The interdependence of our types of business organization with 
self-interest apportionment, with private property, and with 
individual enterprise is easy to show. So also the interdependence 
of the problems centering around these institutions. There is no 
reason, however, for failing to show the fact that social-enterprise 
forms of organization are an alternative method. The United 
States Grain Corporation and Shipping Board could buy and sell 
as well as the Standard Oil Company. 

(3) Financial institutions as techniques 

Once the idea of self-interest apportionment is clear and the 
fact that it is business organizations which hold the strategic points 
in apportioning society's resources, the real social usefulness of 
such techniques as banking and other financial operations becomes 
apparent. Social resources, privately owned, can be drawn into 
use by the financial lure. The organizer, public or private, under- 
takes to furnish the attraction. Private financial institutions 
are important among those which men have found it profitable to 
use to aid them in securing pecuniary power. From this point of 
view the operations of the savings bank, the insurance company, 
the bond house, the commercial bank, the underwriter, and the 
stock exchange, all appear as interdependent techniques useful in a 
society which uses so extensively the self-interest method of appor- 
tioning its resources. Taxation is seen as a corresponding financial 
technique, of chief use in general-interest apportionment. 

(4) Market news as a technique of self-interest appor- 
tionment and some governmental apportionment 
techniques 

Before and after a private business organization commits itself 
to apportioning resources to some particular end it is concerned 



558 LEVERETT S. LYON 

with the social demand for the commodities. This demand 
may, of course, be a demand for producers' goods or consumers' 
goods. Society is demanding (in the economic sense) that resources 
be apportioned to certain ends. The techniques which we use in 
our self-interest apportionment to indicate to private business 
organizations the profitable activities to which to apportion 
resources may well be classed as the techniques of market news. 
From this point of view, all the agencies of demand interpretation 
take on a new social significance. The student sees in a related 
social aspect such agencies as the board of trade, government crop 
reports, consular service, commercial agencies, statistical and 
research companies, and private-research experiments, which 
function in showing private business organizers the direction in 
which society is demanding that its resources shall be apportioned. 
Nor must we forget that market news gathers information about 
society's wishes for increases in social resources — ^new capital and 
the like — as well as of society's wishes for consumers' goods. 
Government has its own scheme of techniques for effecting general- 
interest apportionment. These are far less well developed than 
those of private enterprise. Appropriation committees, the 
"pork barrel," logrolling, and budgetary practices should be 

included. 

(5) Scientific internal business organization as a method 

of apportionment 
One of the means by which modern society attempts to appor- 
tion its resources to productive uses is by "scientifically" organ- 
izing the proportions in which the factors are joined. The law 
of diminishing returns, as it finds application in business, leads 
to an attempt to combine resources in the most effective combina- 
tions.' Not only can the law of diminishing returns be shown in 
its functional aspects, but the student can be brought to see that the 
social significance of scientific management with its time and 
motion study, choice of the right man, grading of workers, plans of 
payment, as well as different types of management such as line and 
staff, are all methods which may bring about a more effective use 

' The most effective combination in private business means, of course, the most 
effective from the pecuniary viewpoint. In a world in which we use self-interest 
apportiormient so extensively it is natural that this should be the test. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 559 

of society's resources in satisfying society's wants/ Accounting as 
a means of directing many of these methods comes to be seen as an 
instrument of vast social importance. The interdependence of our 
social methods and techniques can scarcely be better illustrated 
than here where the interrelation is seen between private property, 
society's wants, and the half-score of sciences involved in "intensive 
organization." 

3. Reducing risks and wastes of social assets 

a) Risks and wastes of physical resources 

Enough has been said in explaining the meaning of this phase 
of production in the outline to make a very limited discussion 
sufficient in this place. A student can be brought to see the peculiar 
nature of this problem of risks and wastes of physical resources, 
involving the constant conflict between immediate and long- 
distance points of view and the constant conflict between our social 
ideals of the perpetuity of society and our method of self-interest 
apportionment. The specific wastes, even pecuniary wastes, 
which are due to a lack of general knowledge of good methods of 
mining, farming, forestry, and the like may be indicated, and the 
manifold agencies, such as research agricultural schools, engineering 
schools, governmental aid, and propaganda, which society is em- 
ploying to check these wastes, can be seen in the light of their 
work for society. Here, too, we may see private property as a 
great method, at times of waste and again of conservation. Public 
control can be shown in the same light. More than this, a basis 
can be laid for a really intelligent valuation of such projects as 
irrigation and reclamation in which our double standard of effi- 
ciency is involved. 

b) Reducing risks and wastes of capital 

The question of when we are risking or wasting capital, from a 
social standpoint, brings with it a question of our standard similar 
to the double standard in connection with physical resources. The 
functional method of approach makes it clear that, for the most 
part, we rely on private interest, interdependent with private 

^ Always rememberiBg that "society's wants," in the field in which apportionment 
operates, means most commonly the interpretation given by market news in pecuniary 
terms. 



560 LEVERETT S. LYON 

property rights, as a method to conserve society's resources of 
capital. A long series of such devices as insurance, speculative 
contracts, and various types of physical protections which aid 
in conserving capital can be seen in their relation to society's 
work. Perhaps even more important is the way in which there 
can be brought into understanding the whole question of when it 
pays to change. Advertising, integration, and conservatism are 
all to a considerable degree stimulated by the desire to reduce risk. 
All of these prove to be methods which conserve the quantity of 
capital which society possesses. Innovators of every sort, the 
promoter, the organizer of new schemes and methods, are con- 
stantly attempting to induce society to create new capital' which 
will throw old capital into the scrap heap. Often these proposals 
involve merely additions, but frequently they propose a change in 
quality of capital. Such a view gives the student some basis for 
judging new projects from a social standpoint. He can see some- 
thing of the real social significance in such social methods as the 
Capital Issues Committee and the "blue sky laws." 
c) Risks and wastes of human resources 
To use its resources of labor to the best advantage in conversion, 
society must be constantly on the watch against inefficiency, 
unemployment, and losses in numbers.^ The social significance 
of unemployment, of diseases, of accident, of illiteracy, of vocational 
misfit, of voluntary idleness, can be brought into the light of some- 
thing more illmninating than sentimentality or employers' profits. 
The methods which society uses to do away with these losses — 
such methods as labor exchanges, public-health agencies, "safety 
first" movements, general education, and vocational guidance — 
can be studied as social methods. The way in which private 
enterprise and private property in goods and in labor function to 
keep human resources at a maximum of efficiency and of employ- 
ment and the limitations of these methods can be examined in a 
way which suggests something of rational procedure for social 
regulation. 

' Sometimes, of course, new institutions or organizations with it. 
» Provided, of course, that the point of diminishing returns has not been passed 
and that the maximum number of living cells is not the social goal. 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 561 

d) Risks and wastes of acquired knowledge and institutions 

Not least among society's resources are the measure of stability 
and coherence it has effected, the methods it employs in carrying on 
its tasks, and the co-ordination which it has secured in the use of 
these various methods. Supplemental to this are useful lore and 
techniques — language, the proprieties, writing, engineering, kind- 
ness, bricklaying, civility, freedom, and innumerable others which 
society has acquired. To conserve what we have of these, perhaps 
especially to conserve our ability to use them fairly well in combina- 
tion, is among the most important of social interests. Perhaps 
the danger of loss of these resources becomes most apparent when 
we view the social upsetting of such a nation as Russia. Other 
Russian resources immediately following the revolution were no 
less than they have been immediately before, but Russia appeared 
to "lose the combination." The effect upon the total social 
resources of Russia, if reports are to be credited, was serious. 

From this viewpoint it is not overly difficult for the student to 
see the functional significance of conservative, liberal, and radical 
attitudes in our society and of agencies which threaten or support 
freedom, liberality, and justice. From such a viewpoint we see 
more clearly what Ross means in saying that the real crimes in 
modern life are those that endanger the ''freedom of the press," 
''manhood suffrage," "the law-abiding spirit," "the free public 
schools," "representative government," or some other "pillar 
upholding our civilization." 
II. Determination 

Why do we do as we do? The answer to this question is a 
discussion of the social function of determination. This is a 
function the discussion of which the economist has left largely 
and perhaps wisely to the social psychologist and sociologist. 

Obviously there are vastly too many matters to be considered 
in studying determination for any single course or sequence of 
courses in one group to do more than suggest the most meager 
outline of what is involved. We do do, however, and no survey 
of social activities could bear a semblance to adequacy which did 
not raise the question of why. Why do the particular methods 
operate which do operate in performing the functions under 



562 LEVERETT S. LYON 

discussion ? Toward what ends, if any, does the social process pro- 
ceed ? If society does work toward ends which in some fashion it 
determines, how are these ends determined? If toward no ends, 
what are the standards by which social action may be judged ? 
What are the controls which cause social structure to change to 
the extent that it changes, and to remain the same to the extent that 
it does so ? Why and how is a certain field marked out as a legiti- 
mate one in which production may operate, while the creation of 
certain want-satisfying goods and services is opposed by strong 
social agencies ? Why is the pecuniary method given almost com- 
plete sway in certain fields, while governmental and quasi-public 
guidance dominate other fields ? 

He who would effect social changes, small or great, must know 
the tools. The same is true for him who would conserve existing 
social structure. The treatment of social determination as a 
function makes clear the fact that there are deep-lying methods 
by means of which social determination is effected. Creeds, 
political faiths, moral codes, customs, religions, ideals, traditions, 
clan and caste systems, taboos, laws, and beliefs are all among the 
methods. The function of psychology and biology, of social studies 
such as economics, sociology, and anthropology as promising pos- 
sible techniques of conscious control becomes apparent. 

That all the deep-lying methods can be influenced by conscious 
effort is attested by proselyting, advertising, missionaries, the 
lobby, and multitudinous other forms of propaganda and educa- 
tion. While the social-science departments of great universities 
may hesitate to introduce courses in the technique of the lobby, 
boss politics, or social propaganda, their more spirited colleagues, 
the divinity schools and schools of commerce, have embarked 
unhesitatingly upon the teaching of all forms of technique that 
will modify to their users' ends the methods of social determination. 
Courses in homiletics and in advertising have much in common. 

As more detailed techniques one sees the countless factors that 
exert influence. The short story and the novel are obvious but no 
more important than the textbook, the hymn, the ballad, and the 
"jazz." The warning of the conservative and the harangue of 
the radical demagogue each plays a part. All alike affect the 



A FUNCTIONAL APPROACH TO SOCIAL-ECONOMIC DATA 563 

deeper-lying attitudes which may be sensibly viewed as the methods 
by which social process is determined.^ 

There is no attempt in these brief paragraphs to do more than 
suggest that some of these highly interdependent factors may 
wisely be viewed as means of creating others. The functional 
view of determination, however, makes it clear that some of the 
factors in the complex are deep-lying and continuously significant; 
others are ephemeral and are significant only as they modify 
the more basic mechanisms. The interdependence and interaction 
is perplexing almost to bewilderment. 

Important among the factors which influence social determina- 
tion are the methods which are used in carrying on the various 
phases of production. Who can reckon the effects upon every 
part of our social structure of the use of capital as a productive 
method ?^ The same question may be asked with equal pertinence 
regarding specialization, pecuniary apportionment, and private 
enterprise. "How we do things" at any time reacts profoundly 
upon the controls which determine how we will do them next. 

Change is perhaps as likely to be degenerative as progressive. 
The functional method of approach proposed promises something 
in the way of clearer standards for social guidance and better 
methods of valuation. The first promise is in the fact that it 
furnishes a way to get before one a specific piece of social machinery 
in terms of what it does. By seeing that it does anything in 
carrying on one of the basic functions we may decide that it has 
value. But the functional approach to economic-social process 
promises better than this. By proposing the consideration of social 
process as the performance of a few basic functions we may rate 
various methods according as they perform those functions. We 
may secure a comparison of values. This, it would appear, is 

'Walter Lippmann suggests a part which the universities might play: "Were 
they in close contact with the current record and analysis, there might well be a 
genuine 'field work' in political science for the students; and there could be no 
better directing idea for their advanced researches than the formulation of the 
intellectual methods by which the experience of government could be brought to 
usable control." — Liberty and the News, p. 95. 

^ In this connection Samuel Butler's Erewhon, especially "The Book of the 
Machines," is highly interesting. 



564 LEVERETT S. LYON 

close to the essence of social science: to secure a method of valua- 
tion for social methods. Without such a method all thought of 
even semi-intelligent control of social evolution is futile. The 
functional approach promises something as such a technique. 

CONCLUSION 

The method of the functional approach is to outline social- 
economic processes in terms of a few "basic" functions and to 
organize social data as methods of performing these functions. 

The function of the functional approach is to furnish a tech- 
nique which may help : (i) to show the organic significance of social 
mechanisms; (2) to give a sense of relativity and perspective to 
social phenomena; (3) to furnish a technique for valuation of 

social methods. 

Leverett S. Lyon 

Univeksity of Chicago 



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